Trail of Corruption
1. Janata Bank gave Tk 684cr to Crescent in advance against 653 overdue export bills. BB investigators observe there is little chance for repatriation of the money.
2. Janata didn't follow steps to verify Hong Kong-based importers. Credit rating agency found the importers don't exist in their addresses.
3. Janata bought export bills though the LC documents were not accepted by the importers.
4. BB observes Janata's top management was allegedly involved in the scam.
5. Goods were sent to Hong Kong but some of the payments came from remittance agencies in Dubai.
6. Such payments were shown as export proceeds and export incentives were taken against them.
7. BB thinks these “proceeds” were actually sent from Bangladesh legally or illegally.
8. Janata's loans to Crescent are 55% of its capital in violation of law.
9. Total loans of the bank's Imamganj branch to Crescent stood at Tk 2,760cr, which was 98% of its total advance.
“Oh my God! Incredulous!” was the expression of a banking expert as he leafed through the Bangladesh Bank probe report.
Page after page of it explains in painstaking details how a Bangladeshi business entity allegedly skimmed at least Tk 765 crore in the name of exports from the state-owned Janata Bank and the BB from January 2017 to February this year.
And it also shows how the top management of Janata was allegedly involved in the fraud.
The Daily Star had taken the help of the banking expert with long experience in international trade and finance to decipher the technicalities mentioned in the report.
It shows the company in question, Crescent Group, which has already come under the spotlight in recent months for its alleged banking fraudulence, had exported leather products to some shady companies in Hong Kong. Indications are that these firms were shell companies because they actually don't exist at their mentioned addresses and many of their directors are Bangladeshi citizens.
The documents also cast doubts as to whether the exports had actually taken place.
The whole scam was done in such a blatant way that even a novice could see the holes in Crescent's deals. Only Janata did not.
These firms obtained export LCs from an obscure African bank. The authenticity of the LCs has also been questioned by the BB investigators.
The proceeds from the doubtful exports never came to Bangladesh, but Crescent, in collusion with the Janata Bank top officials, took out Tk 684 crore in advance against such exports from January 2017 to February this year, the investigators say.
This is just a part of the story.
It took an even more sinister turn when the investigators found that Crescent had drawn Tk 81 crore in cash incentives from the BB.
To get cash incentives, an exporter has to prove that export proceeds have actually been repatriated to Bangladesh.
But in case of Crescent, the money came not from the destinations of exports but from elsewhere which was shown as export proceeds to get cash incentives.
Crescent claimed to have exported to Hong Kong but its export receipts came from Dubai, often from different remittance companies.
The investigators suspect the “export receipts” were not the result of exports but money sent to Dubai from Bangladesh through legal or illegal means and then brought back again through remittance companies to be shown as export proceeds.
In clear terms, these were fake proceeds that were later used to siphon money from the BB as cash incentive, according to the investigation report.
JANATA BANK'S MYSTERIOUS NON-COMPLIANCE
In every step of the unscrupulous scheme, deep involvement of Janata Bank officials is clearly evident as the bank violated all security protocols in accepting the LCs and giving money to Crescent.
Here is the full saga of the scam:
In any overseas financial transactions, the beneficiary bank is supposed to carefully verify the authenticity of the importers to avoid fraudulence. Banks get reports on the importers from credit rating companies such as Standard & Poor's.
But in this case, Janata did not bother to acquire such reports.
When the BB investigators asked the state-run bank to get reports, only then it obtained reports on only eight of the 21 importing companies that reveal how shady these companies were and Janata could have avoided fraud if it had just done due diligence.
SHADY HONG KONG COMPANIES
The scam centring Crescent and Janata was apparently committed through 653 export bills all of which are now overdue or non-repatriated as it is termed in the banking world, meaning not a single payment from the exports were received.
These export orders were placed by 21 Hong Kong-based companies, but only nine of the firms placed 90 percent of the orders. Many of the companies have the same address which the investigators found as unusual and suspicious.
“Although the names of the buyers are different, it was found that their addresses and even office numbers are the same. It is very unusual and suspicious that importers of goods worth hundreds of crores of taka will share the same address,” the BB investigators observed.
They collected credit reports on eight of the firms from international credit agency Dun and Bradstreet, something that Janata itself should have done as part of its due diligence. The credit reports couldn't provide financial information on any of the firms, seven of which are registered in Hong Kong and one in Bangkok.
Moreover, the BB found that the firms don't exist at their mentioned addresses.
Two of the firms -- Mutual Well Investment Ltd and King Profit Asia Pacific Ltd -- not only share the same office address, but their directors and company secretaries are also the same persons.
Two other firms -- Sun Paul Leather Craft and Lixiang Trading Ltd -- also bear the same address though the nature of their business is different. They are owned by two Bangladeshis -- Shahriyar Kabir and Masud Mowla.
The credit rating agency said no registration was found for two firms -- Bio Li Da Trading Com Ltd and Lixiang Trading Ltd. But they had a Bangladeshi named Manzur Ahmed as their company secretary.
Another firm, Merchant Trade Guarantee Corp Co Ltd, is a freight forwarding company in Thailand. “It is unusual that a freight forwarding company had imported leather goods worth hundreds of crores of taka,” the investigation report said.
Janata, however, did not think about this point.
The Daily Star talked to Crescent Group Chairman MA Kader about the allegations, which he refuted flatly.
“It is not correct that the importers don't exist,” he said, claiming that he had exported to the same companies many a time before and received export proceeds.
He said the office address or ownership may be the same because they belong to the same group of companies.
JANATA PAID CRESCENT WITHOUT VERIFICATION
In the banking world, this is unprecedented but that is what Janata has done.
When an export is executed, the importer accepts the documents to confirm that the export has actually taken place and that it has received the goods.
This acceptance is given to the issuing bank -- the bank of the importer which opens LC -- (in this case the African bank) which sends the acceptance letter to the beneficiary bank (Janata in this case) -- the bank of the exporter -- for release of funds to the exporter.
Upon receiving the acceptance from the issuing bank, the beneficiary bank may give the exporter his proceeds after slashing a certain amount as interest. This process is called creation of Foreign Documentary Bill Purchase.
It serves both parties well -- the exporter gets his proceeds quickly and the bank, which then processes the documents and repatriates the proceeds from the issuing bank, makes profit from interest charged on the exporter.
In this case, Janata had not received any acceptance letter from the issuing bank and yet paid the exporter Tk 684 crore in advance in gross violation of the banking rules.
In Bangladesh Bank investigators' words, “The bank said FDBPs [Foreign Documentary Bill Purchase] have been created, but since the export bills bore no acceptance of the issuing banks, they did not turn into bills”.
In a letter on September 27 last year, the BB clearly directed Janata managing director not to buy any foreign bills without acceptance of the importer.
But Janata disobeyed the directive, and its managing director also did not notify its branches of this directive until February this year. And during this period of around four months, Janata gave another Tk 334 crore to Crescent by illegally purchasing its export bills, taking the total to Tk 684 crore.
Crescent Chairman Kader admitted that the bills remain overdue because he could not ship the products on time when his operation was disrupted due to relocation of the tannery industry from Hazaribagh to Savar.
“I am negotiating with the buyers to repatriate the export proceeds by providing some concessions to the importers,” he said.
UNSOLVED MYSTERY OF AN AFRICAN BANK
Four of the importing firms were registered in Hong Kong, Thailand and the UAE, yet they chose an obscure African bank in Gambia, Axios Credit Bank Ltd, to open their export LCs.
“This is not only mysterious but extremely suspicious and illogical,” the BB report said.
None of these firms has activities in Gambia, nor do they have any offices there. So why they chose this Gambian bank to open LCs now hangs as a big question -- a question that Janata never bothered to ask.
The banker who helped The Daily Star in deciphering the probe report said he never heard about LCs being issued from African banks for exports from Bangladesh and that the whole scheme was a shady affair to skim money off Janata Bank.
But Janata's behaviour was even stranger.
Banks remain very alert in case of purchasing export bills before the export proceeds are actually repatriated.
The process goes like this: the exporter exports goods and the importer through his bank certifies that the exports have actually taken place. Against this certificate, the exporter then approaches his local bank -- Janata in this case -- for payment in advance.
It is then the bank goes into the whole process of due diligence to ensure that the exports had genuinely taken place and that the importer's bank is authentic and will repatriate the export proceeds in time. Once it is satisfied, the bank buys the export documents and pays the exporters in advance.
But if the exporter's bank is not convinced about the soundness of the importer's bank or if the importer's bank is not a renowned one, it asks for additional confirmation from a reputed foreign bank, say for example Standard Chartered and HSBC. The importer has to bear additional costs for such confirmation. This the bank does to reduce its risks.
In case of this Gambian bank, Janata did not ask for additional confirmation though the Gambian bank was completely an unknown entity.
Even more egregious is the fact that Janata had no way of directly contacting the Gambian bank to confirm the authenticity of the LCs.
Banks rely on SWIFT messaging network to contact each other, and to use this network, banks have to set up an authentication protocol called Relationship Management Application (RMA) between themselves. For this, a unique key is exchanged between the two banks through which they can authentically communicate and confirm LCs.
With this obscure Gambian bank, Janata had no RMA and so it had no way of knowing if the 221 LCs issued from the Gambian bank were fake or genuine. And yet after the so-called exports, Janata without thinking twice purchased all the export bills and paid Crescent the money in advance.
In their observation, the BB investigators said, “It is doubtful if the 221 LCs were at all issued [by the Gambian bank], and the possibility of getting the export proceeds is very slim.”
Asked, Crescent Chairman Kader said, “The 221 LCs issued by the African bank were not fake as many more LCs were issued by the same bank earlier and proceeds were repatriated.”
The proceeds of the 221 bills remain unrealised due to delay in shipment, he claimed.
The importers issued LCs from the African bank instead of their local banks to reduce costs, Kader mentioned.
“We are trying to repatriate the export proceeds,” he mentioned.
In matters of exports, the beneficiary bank (Janata in this case) releases money to exporter only when it gets clear confirmation from the LC issuing bank (here the Gambian bank) that the exports had actually taken place according to contracts. Without such confirmation, paying the exporter in advance is deemed highly risky.
If the issuing bank finds export documents don't comply with LC terms, it notifies the discrepancy to the beneficiary bank, which then stops payment to the exporter.
Crescent had also exported goods with LCs from banks other than the Gambian one. These banks had found discrepancy in the exports and duly sent discrepancy notes to Janata through SWIFT message in case of 71 export bills.
They had advised in clear terms “representation of documents is strictly prohibited”. This means the issuing bank has found so many anomalies that it will not accept any further documents against the exports. Yet, Janata bought the export bills.
The BB investigators concluded from such messages that “the export proceeds from these 71 LCs can never be repatriated”.
EXPORT PROCEEDS LAUNDERED
Crescent had exported goods against export LCs from banks other than the Gambian bank.
The BB investigation found that the issuing banks (banks which opened export LCs) had made payments against 49 export bills to Janata's nostro account -- an account that a bank holds in foreign currency in another bank -- with The Citibank NA in New York.
But in gross violation of the BB guidelines, Janata didn't adjust the export proceeds with the advances it paid to Crescent to buy its export bills.
The bank officials didn't answer the BB investigators' queries on how the export proceeds deposited with the Citibank were used.
The investigators said, “It is apparent that the export proceeds of those 49 LCs were laundered to another country at the directive of Imamganj branch [of Janata Bank] in collusion with the client [Crescent]”.
Crescent denied its links to the proceeds deposited with Janata's nostro account.
LCS UNADJUSTED, YET NEW LOANS GIVEN
As repatriation of proceeds from Crescent's exports remained overdue, Janata in no way was supposed to buy any more export bills from the company. The BB had instructed the managing director in this regard in September last year. But the instruction was disregarded by Janata.
According to the probe report, the managing director didn't notify the branch until about four months after the BB order. In the meantime, Crescent got another Tk 334 crore from the branch.
Later, the BB sent four more instructions to Janata's head office following which the bank committed not to buy bills before adjusting previous payments against bills.
The BB investigators came to the conclusion that the MD and officials concerned at the particular branch of Janata have helped Crescent siphon off the money.
The board of Janata Bank was so concerned about Imamganj branch's activities that it had appointed its executive director to look into the affairs as an observer.
On February 6 this year, the observer in his report to the board said Tk 140 crore of the Crescent's export proceeds were repatriated after the BB investigation.
Even after all that happened and repeated instructions from the BB, Janata continued to provide bill purchase facility to Crescent and bought fresh bills worth Tk 147 crore.
While discussing the observer's report, the board was surprised to learn that the bank was continuing bill purchase facility to Crescent and asked Janata management to immediately seize the branch's power to buy export bills. It also asked the MD to take punitive action against those behind the scam.
During the board meeting, the observer wanted to know if the LCs of the fresh Tk 147-crore export bills were accepted or not by the issuing bank abroad. However, a general manager of Janata, present at the meeting, told the board that Imamganj branch couldn't provide any information in this regard.
On December 28 last year, the BB asked Janata to classify the loans given to crescent against the purchase of export bills. However, the state-run bank's officials didn't mention the status of the loans given to Crescent at the board meeting on February 1 this year.
CASH INCENTIVES AGAINST DUBIOUS EXPORTS
Crescent has received a total of Tk 1,074 crore in cash incentives against its exports between 2013 and February this year, and a chunk of the cash was given to it although 653 of its export bills that Janata bought remain overdue.
This is another gross violation of the BB rules which say a company will not be eligible for cash incentives if any of its LC proceeds remain unrealised within two years of its claim for incentive.
In the latest instance, the company received Tk 81 crore in cash incentives within a day of filing claims on February 15 this year. The speed at which it got its cash incentives is unprecedented.
But Crescent Chairman Kader claimed the cash incentive of Tk 81 crore was pending since 2016. The money was not released against the latest application submitted in February this year, he said.
The investigators found that Crescent showed export proceeds on 117 export bills but the proceeds came not from the issuing banks but from some third parties that have no relation with the importers' banks.
The export proceeds of these 117 bills were sent from different remittance companies in the UAE.
The investigators suspect that the money was actually sent from Bangladesh to the UAE and then brought back to show as export proceeds with the intention to avail cash incentives.
But Kader brushed aside the allegation, saying payments against exports can be made by any third party notified in the business contract instead of the issuing bank only.
He said on July 25 that he would provide this newspaper with documents to substantiate his claims, but he didn't give any till the filing of this report.
UNUSUAL TRANSACTIONS IN JANATA OFFICIALS' ACCOUNTS
Investigators checked the bank accounts of the then manager at Janata's Imamganj branch and other officials and found unusual transactions.
Besides his salaries, an additional Tk 60 lakh was deposited with the branch manager's account and later withdrawn between 2015 and 2017.
WHO OWNS CRESCENT GROUP?
Two brothers -- MA Kader and Abdul Aziz -- are the main beneficiaries of the Crescent Group, according to the BB findings.
Aziz is the chairman of Remax Footwear and also the owner of Jaaz Multimedia, a production house of Bangla movies.
However, Kader told this newspaper that he solely owns the business and Aziz has no involvement in it whatsoever.
Kader is the chairman of five companies of the business group -- Crescent Leather Products, Rupali Composite Leatherwear, Crescent Tanneries, Rupali Composite, Lexco Limited and Glory Agro Products.
His wife Sultana Begum and mother Rezia Begum are directors of all these companies.
All the companies except for Glory Agro process raw hides and finished leathers, and produce leather products including shoes, sandals, bags for women, belts, wallets and key rings for the local and international market.
The primary exporting markets for processed hides and leather products are North America, EU countries, Japan, China and the Far East Countries, according to the Crescent group website.
Only about a year ago, Crescent appeared with a bang on the local market with full-page adverts in all major newspapers. It offered shoes on instalments, something no one has ever seen. Anybody could buy any shoe on instalments for up to six months. Shoe is such a commodity that people don't buy on deferred payment, and yet Crescent came up with the idea.
It also went on a spree to open showrooms around the country. In the capital alone, it has 20 showrooms with promises to open three more. It opened four showrooms outside the city.
JANATA BRANCH'S 98% LOANS TO CRESCENT ALONE
In the banking world, it is simply unbelievable. Janata's Imamganj corporate branch has given 98.4% of its total loans to six firms, all belonging to Crescent Group.
The branch disbursed Tk 2,804 crore in loans as of March 30 this year. Of the amount, Tk 2,760 crore was given to the six companies of the Group from 2007 to 2017.
This means Crescent's loan with Janata is about 55 percent of the bank's equity capital. It's a complete violation of the Banking Company Act which says a bank can in no way give more than 25 pe rcent of its capital as loans to an individual or group.
Asked about the alleged scams, Janata Bank Managing Director Abdus Salam Azad told this newspaper in an SMS that an audit team from the head office is working on the issue.
“We will get back to you upon completion of the enquiry report.”
Janata Bank Chairman Luna Shamsuddoha also communicated with The Daily Star through email.
“We have instituted internal investigation. Our legal team is looking into the matter. We have also taken steps against some we have been able to identify for being involved in the irregularities and who have transgressed the law,” she said.
“We are not in a position to divulge any further information because it is going to prejudice the investigation and legal steps we are contemplating,” added Luna.